$5 Billion Loss Creates Big Buy Signal

It’s been 4 months since this stock got smashed.

Since then it’s been controversial, and dangerous to attempt to buy in its decline.

Now it has news, price action, and a longer-term pattern that sets it up as a good buy.

Read below for today’s unusual trade idea

Next week Boeing (BA) is going to announce earnings, but today it announced that it’s going to take a $5 billion charge related to the 737 MAX grounding.

As I write this, the stock is up $8 on this news.

This pre-announcement, combined with the positive price action is a classic sign of a company trying to get ahead of future bad news, and a stock that is ready to rally as soon as it feels that the worst is behind it.

This is very similar to the bad news good price action prior to an earnings announcement that we saw in AAPL in at its January lows.

However, BA also has a bullish long-term pattern.

Notice in the chart below how the $360 level was important support for a while after the initial collapse. Then it became important resistance.

https://lh6.googleusercontent.com/DTgPiATZDDsYyIAiIHH4cBfGfskowC_16sgzluNnf4Fe2s4Ry_i2DoYhQjSMbR5K2JymNbVRc4qRYl_D0UU7xMgj4WBygxzAWSFVbiRp-x7vUHp0NhS06IsK4bXOqhKzxtV9n18o
 

In June $360 was broken to the upside, and then tested again in July as support. The test stretched down to $350, but today’s reversal comes off of $360 support.

If BA closes over $370 its pattern of testing the $360 will be complete, and it should head higher.

Even without the news of the $5 billion charge, this pattern would be bullish, but with the news, it has a catalyst that sets it up for an extended move though earnings next week.

This is a good opportunity to buy long dated calls and be willing to risk the entire investment.

For example, I like the 420 calls that will probably trade around $5 when BA is breaking $370.

If BA trades under $360 then the position should be sold, but with an expectation that I’ll hold the calls through earnings, it’s possible that a big gap down could wipe out most of the $5 call.

However, my expectation is that the if BA climbs above $370 before earnings then its reaction to earnings will be positive.

To be clear, be prepared to lose the entire investment, but if it works it could be a 500% long-term winner. 

Trade smart,

Rick Nartarian, Chief Investment Officer
The American Investor Daily